Organizational Theory PDF

# Organizational Theory Organization Relationships with the Environment and Stakeholders ADMN 2510H ## What is the Environment? The Environment includes all elements that have the potential to affect the organization - outside forces in particular, but can include inside as well. Changes in the...

# Organizational Theory Organization Relationships with the Environment and Stakeholders ADMN 2510H ## What is the Environment? The Environment includes all elements that have the potential to affect the organization - outside forces in particular, but can include inside as well. Changes in the environment can create both threats and opportunities for organizations (recall SWOT). Organizations often have to adapt quickly to environmental uncertainties such as competition, economic turmoil (COVID), consumer and stakeholder demands, innovation and technologies, disasters. - Some organizations are unable to adapt, refuse to adapt (Blockbuster). - Some organizations try to influence, control the environment in certain ways (Theranos). The environment often imposes constraints on manager decision making - sometimes have to "satisfice". ## Organization Environment – 10 Sectors ### Task Environment Sectors with which the organization interacts directly and that have a direct impact on the organization's ability to achieve its goals. - Industry - Raw materials - Market - Human resources - International ### General Environment Sectors that might not have a direct impact on the daily operations of a firm but will indirectly influence it. - Government - Sociocultural - Technology - Financial resources sectors - The economy (similar to PEST analysis factors) These 10 sectors determine the DOMAIN (chosen strategy, goals, decisions) of an organization, due to their impactful nature. ## The Environmental Domain A diagram depicting the organization's environmental domain is shown. It consists of 10 sectors that are divided into two categories, Task Environment and General Environment. - International Sector - Industry Sector - Raw Materials Sector - Human Resources Sector - Financial Resources Sector - Market Sector - Technology Sector - Sociocultural Sector - Government Sector - Economic Conditions Sector ## PEST Analysis A tool used to assess the external environment when strategizing, setting goals, making decisions. ### Political Factors - Government stability - Rule of majority - Taxation policy - Regulation and deregulation trends - Levels of corruption - Ease of doing business - Ease of initiating a business ### Economic Factors - Stage of business cycle - Impact of globalization - Labor costs - Changes in the economic environment ### Social Factors - Population growth - Gender and Ethnic diversity - Health and education - Social welfare - Economic disparity - Digital disparity ### Technological Factors - R&D Activity - Impact of emerging technologies - Impact of technology transfer - Technology diffusion - Technology disruption ## Environmental Uncertainty Organizations often need to deal with uncertainty, instability in environments. ### Adapting to Environmental Uncertainty - **Assign positions and departments** (e-business, legal, ethics). - **Establish closer relationships with the environment** (buffering and boundary spanning to interact with the environment, stakeholders). ### Buffering - Absorb uncertainty from the environment. - Buffer departments between the environment and the organization. ### Boundary Spanning - Link and coordinate an organization with key elements in the external environment. - Exchange of information to detect and bring into the organization information (Big Data) about changes in the environment. - Send information into the environment that presents the organization in a favourable light - bridge vs. segregation. - **Differentiation** (specialized divisions, departments such as R&D) and **Integration** (collaborate across departments, divisions). - **Change management strategy, structure** (organic, human relations vs. mechanistic, classical) - recall Home Depot (profits over people). - **Planning, forecasting, and responsiveness** (predict contingencies, scenario building - Domestic Car Manufacturers in the 1970s and again in the 2020s). ## Resource-Dependence Theory - **Resource-Dependence Theory** - Stakeholders, environment that have the resources that organizations need hold "power" over organizations - managers will make decisions based on satisfying the needs of that stakeholder salience (importance). - **Organizations manage resources through changing, manipulating, or controlling elements in the external environment in 2 ways:** ### 1) Establishing organizational linkages such as: - Merger and acquisitions (ownership) of resources. - Strategic alliances. - Cooptation - Influential people are made part of the organization. - Executive recruitment - Connections of influence and communication. - Advertising and Public Relations for legitimacy. - Legitimacy Theory - Address stakeholders that can build or threaten an organization's survival. ### 2) Controlling/ Changing the environment through: - Changing the domain - Netflix from DVD renting to creating a new market (streaming). - Political activity and regulation (lobbying) - Walmart in India. - Trade associations - National Confectioner's Association - snack-size lower calorie treats. - Illegitimate activities - Convince Walgreens to have the blood testing machines in store, influential people on the Board, supporting the service. ## Designing the Dual-Purpose Organization - **Hybrid organization** - Pursues both profit and social missions within a single organization. - **Types?** Benefit Corporations, Worker Self-Directed Enterprises (WSDE), social entrepreneurship, Bottom-of-the-Pyramid. - **Mission drift** - Giving less importance to their social mission and more important to generating revenue and profit (Key conflict in Hybrids - recall VW Supervisory Board). - **Pressure from stakeholders to be financially viable and socially responsible** has pushed both for-profit and non-profit organizations to create social and financial value as part of their core business - CSR and ESG goals, Benefit Corporations. ## Designs for Achieving Commercial and Social Welfare Goals - **Various structures and techniques can be used for organizing people who hold opposing mindsets and values about an organization's purpose.** - **Knowing when to use an integrated structure versus separate departments** (Supervisory Boards, environmental department). - **Hiring employees with a balanced mindset**. - **Set clear goals and measure effectiveness**. - **Collaborate with like-minded organizations** (suppliers). - **Keep the social mission alive in the minds of employees** (leadership and mentoring). - **Choosing the correct legal framework** (Benefit Corporations). ## Corporate Social Responsibility - **Approaches and models that businesses adopt to organize their socially responsible activities include:** - CSR and ESG goals. - Benefit Corporations - Change the strategy/ structure of the organization. - The green movement and sustainability. - The triple bottom line - People, profit, planet. - Serving the bottom/base of the pyramid - Unilever personal and home care products, health and beauty products, nutrition. - Serving organizational stakeholders (for example business, corporations not just focusing on serving investors, shareholders financial interest). ## Who are Stakeholders? - "Any group or individual who can affect or is affected by the achievement of the organization's objectives" – Freeman in Mitchell et al (p. 854). - The natural environment is a stakeholder as well - "I am the Lorax and I speak for the trees!". - Stakeholders can be found within the organization, and the External Environment. - **Stakeholder theory** - Organizations should attend to the interests of ALL stakeholders, not just shareholders (which is stockholder theory). - **Decisions affecting stakeholders can be proactive** (anticipate and lead on concerns, contingency and risk planning), **or reactive** (do the minimum necessary - abide by laws, react to certain events, crises, disasters). - **CSR - Corporate Social Responsibility** - Ethical obligation to stakeholders, but not a legal one (CSR Reporting). - **ESG - Environmental, Social, Governance** - Measuring CSR. ## Organization Views of Stakeholders - **Stakeholder and Organization relationships are based on Power** (empowerment and cooperation, or domination and exploitation), **dependence** (resource and legitimacy), and **reciprocity** (mutual benefit). - **Stakeholder salience is questioned often when something has happened where there is a risk of relationship breaking down between the organization and the stakeholder - organization is in danger/crisis** (limited resources, constraints, threats to legitimacy). ### Narrow vs. Broad view of stakeholders #### Narrow: - **Stakeholder has a direct relevance, salience (importance) to an organizations' economic interests** (such as resource-dependence, legitimacy). - **Make decisions that maintain and build stakeholder relationships**. #### Broad: - **Actions of organizations affect all stakeholders in some way, and vice versa**. - **How is this possible?** Globalization, Social Media, Environment/ Climate Change. - **Managers, Leaders need to recognize and respond to stakeholder interests as stakeholders hold power over them in some way - balance these interests to satisfice, mutual benefit**. - **Power - Stakeholders raise awareness of an issue** (through media, social media, whistleblowing). - **Stakeholders can also hold power through resources** (labour shortages - potential employees can demand higher pay). ## Balancing Stakeholder Interests - **Deciding on which stakeholders to consider and address their concerns is based on:** ### 1. Power - Organizations bring about outcomes they desire - Organizations hold power over stakeholders. - But, stakeholders can also have power over the organization (resources, influence as consumers and through social media, competition). ### 2. Legitimacy – Socially accepted organizational behaviour based on commonly shared society norms, beliefs, values - Is the organization demonstrating "bad" behaviour according to certain stakeholders, society? ### 3. Urgency - Crisis or major issue arises affecting stakeholders that must be addressed immediately (time sensitive) - Product recalls, cancel culture.